Q4 2014 Banco Bradesco S/A Earnings Call

Jan 30, 2015 AM EST
BBDC4.SA - Banco Bradesco SA
Q4 2014 Banco Bradesco S/A Earnings Call
Jan 30, 2015 / 02:00PM GMT 

Corporate Participants
   * Operator
   *  Paulo Faustino da Costa
      Banco Bradesco S.A. - Director, Market Relations Department
   *  Luiz Carlos Angelotti
      Banco Bradesco S.A. - Managing Officer and IR Officer

Conference Call Participants
   *  Mario Pierry
      BofA Merrill Lynch - Analyst
   *  Tito Labarta
      Deutsche Bank Research - Analyst
   *  Daniel Magalhaes
      Credit Suisse - Latin America - Analyst
   *  Thiago Batista
      Itau BBA - Analyst
   *  Saul Martinez
      J.P. Morgan - Analyst
   *  Boris Molina
      Santander - Analyst
   *  Victor Galliano
      Barclays - Analyst

Operator   [1]
 Good morning, ladies and gentlemen. We would like to welcome everyone to Banco Bradesco's fourth quarter 2014 earnings results conference call.

 This call is being broadcasted simultaneously through the internet, in the website www.bradesco.com.br/ir. In that address, you can also find a banner through which the presentation will be available for download. (Operator Instructions)

 Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on information currently available to the Company.

 Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

 Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Banco Bradesco and could cause results to differ materially from those expressed in such forward-looking statements.

 Now, I'll turn the conference over to Mr. Paulo Faustino da Costa, Market Relations Department Director.

 Paulo Faustino da Costa,  Banco Bradesco S.A. - Director, Market Relations Department   [2]
 Good morning, everyone, and thank you all for participating in our fourth quarter conference call. We are here today to provide you with all the information you may need about our numbers, and this is in line with our goal of always increasing the transparency of information disclosed to the market.

 We have here today Mr. Alexandre da Silva Gluher, Bradesco's Executive Vice President; Mr. Marco Antonio Rossi, Chief Executive Officer of the Bradesco Seguros Group and Bradesco Executive Vice President; Mr. Luiz Carlos Angelotti, Executive Managing Director and Investor Relations Officer; and Mr. Moacir Nachbar Junior, Executive Director.

 I will now turn to our Executive Director and Investor Relations Officer, Mr. Luiz Carlos Angelotti, who will lead our conference call. And after his presentation, we will be opening to answer your questions. Mr. Angelotti, please go ahead.

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [3]
 Good morning, everyone. We will now go over Bradesco's results for the fourth quarter of 2014.

 We're starting on slide 2, with the highlights of the period. The adjusted net income reached BRL15.3 billion in 2014, up 25.9% year over year, and is 4.1% (sic - see slide 2, "BRL4.1 billion") in the fourth quarter, up 4.6% quarter over quarter.

 ROE reached 20.1% in 2014, a 200-bps increase year over year. Our ROE in 2013 was running around the 18%, and we had a significant increase during 2014. And this increase was possible because in our NII, interest-earning portion increased by 12% during the period.

 Our efficiency ratio reached at 39.2%. It's the best level ever and it aligns with our target planned five years ago.

 Our fee and commission income increased by 11.6% year over year, as a result of investments in the increased segmentation of our client base and our improvement in technology for offer more products for our clients.

 The operating expenses, personnel and the administrative, went up by 190 bps below inflation, year over year, and our target for 2015 is maintain the operating expenses growing below the inflation.

 Our total assets exceeded at BRL1 trillion.

 The expanded loan portfolio reached BRL450 billion, up 6.5% year over year.

 The net income from insurances amounted to BRL4.4 billion in 2014, up 17.8% year over year growth.

 And the insurance written premiums increased 13.9%.

 Moving to slide 3, we have the book net income versus our adjusted net income. In the fourth quarter, our book net income is BRL3.9 billion, and we had some non-recurring events. The main events relate to the impairment of assets, BRL702 million -- composed by BRL85 million related to softwares that during the year start to been [unused], and the BRL617 million is related to impairments of the cost of shares that we have in the insurance [fee] portfolio for using as a guarantee of the technical reserves.

 With these adjustments, non-recurring events that we had in the period, our revenues -- our profit, or our adjusted net income, in the quarter is BRL4,132 million.

 And our final ROE for the year is 20.1%.

 Moving to the slide 4, we have the adjusted net income growth. In the quarter, the growth is 4.6%, and we had from the net interest-earning portion a contribution of BRL525 million related to the increase of business volumes. And this highlighted, the main line is from insurance margins that came we have the contribution.

 The fees, we had BRL200 million, and a negative impact that we had during the period is related to the administrative and the personnel costs, the operational costs. That is an amount of BRL643 million above the average that we had in the other quarters. But we had a seasonal effect. Normally, in the last quarter of the year, we have a seasonal growth in the operating expense related to more volume in the transactions, and we have some costs that are related to the volumes of this growth. And we had an increase in the marketing expenses.

 Talking about the year's growth, we had a contribution, a good contribution, from the net interest-earning portion related to the increase of the [business volume]. But the main factors came from the loan margins and the funding margin. This has had a very good contribution, more than BRL2 billion -- BRL2.3 billion -- in the year, a very good growth that we had because we could improve the offer of products for our clients.

 The operating expenses reduced an additional way our profits, in BRL1.2 billion. But we need to say that we had a growth under the inflation in the operating expenses. Additionally, the commitment of the Company is a control of costs.

 Moving to the slide 5, we have the net income breakdown. This quarter, we could maintain reasonably stable [origins] of our profits, but we expect that for 2015 that probably the loans growth will be (inaudible), which is the guidance. We'll continues running a more lower level but we understand that probably the loans contribution in the net income probably will maintain stable because we expect that our delinquency ratios will continue to be stable. (inaudible), loan margins will continue having a positive contribution.

 Another thing is that we have 73% of our profits that came from the other businesses that is not related to loan growth. We have the fees and the funding earnings and the insurance contribution. That is (inaudible) percentage of our profit. This diversification (inaudible) of our income give us the possibility to maintain the expectation of stability in our profits for the next year, for 2015.

 Moving to slide 6, we have the efficiency and the operating coverage ratios. The lines that we have in the top of the slide is our operating coverage ratio; that's the combination of the fee and the commissions to the personnel and administrative costs. We are having continuous growing in this ratio; we are improving our efficiency. And we can see that our efficiency ratio is improving this year. We had a decrease in the ratio, around the 300 bps. That is the combination of our efforts for increasing the revenues and to control the costs, or expenses. And we had successful to reach now the best level ever that we have in the Company, this 39%. That is one target that we planned five years ago. And now, we have this level.

 We expect to, for the next period, that probably we will continue having some more benefits as we are improving the efficiency, but probably it will be in a more gradual way, probably closer of 1% a year that we expect to continuous improving, and we will improve this, our efforts to maintain our ratio run in a better way.

 Moving to slide 7, we have our NII. In this quarter, our NII reached, the total NII, at BRL12.90 billion, BRL705 million increase in compared with other quarter.

 We have now our NIM here. Normally, we disclose our NIM at the quarter NIM in an annualized way. That is, in this quarter, the number that we have is 7.7%. But now, we will start to disclose the NIM, but in a (inaudible) basis. Then, that now is 7.2%. We think that this ratio shows better the tendency of our NIM for the Company. That now is 7.2%, and we expect that for 2015 that this ratio will maintain stable at this level, 7.2%. We understand that it is reasonable that we will expect this stabilization in the ratio.

 Moving forward to the slide 8, we have the NII, interest-earning portion. In this quarter, we achieved BRL12.7 billion, BRL525 million growth compared with the quarter before. In the quarter, the main highlights, we had in the insurance margin, 24% growth. This is related the growth in the volume of transactions for insurances and, [some other part], with a combination with the CPI, the inflation index, that in this quarter has a 1% additional growth. We have some bonds that they have a remuneration related to IPC; then, we have these additional revenues.

 Looking for the year, we had a 12% growth, and the main sectors is more related to loans -- that is around 70% of the total NII -- and the funding, that grew 33%. We are working for to reduce the cost of funding and giving more priority for the retail funding, and we had success during 2014. And we expect that during 2015 we will maintain this policy and probably we expect some additional gains in the next -- during the 2015.

 We gave the guidance for 2015 for our NII that is 6% to 10% growth, and we expect that our NII from loans will grow probably more, a little better, than this we had in 2014 -- 5.5% -- and we expect to have a better evolution, better growth, because the spreads in some operations that we have [possibility to increase].

 In the funding portion, because the cost control that we are working and (inaudible), improving, when you compare with 2014, we expect to happen a growth around the 10%. Insurance, normally our margins, we have the growth between 10% to 15%, is the average. And the securities and others -- that is, our other assets and liabilities in the banking, excluding loans, funding, and the insurance assets in the insurance balance sheet -- we expect to have the growth around the 8% to 10%.

 Moving to slide 9, our credit margin. We have in the top of the slide our spreads that is reasonably stable around the 10%. We expect that probably in 2015 we will maintain this level in our spreads after the delinquency ratio. We expect that we will have some improvements. Now, we have 6%, but probably during 2015 we expect to have some improvements, because our expectations for the cost with the delinquency ratio, that in this graph is the red portion, we expect some stability during the year in the delinquency ratio and that those costs not -- will grow less than our expectations for the credit margin.

 Probably, the percentage that we have -- now, it's 30%. So, our cost with the delinquency ratio is consuming from our credit margin. Probably, we will be running more close of 38% during 2015.

 And the cost with the delinquency ratio that we had with our expectation of stability in the delinquency ratio during the year, probably the expense will grow less than the loan portfolio growth, around [50%]. Probably, this is what we expect because the costs of our portfolio that we understand that we have.

 Moving to slide 10, we have our BIS ratio, the Basel ratio. On the left-hand side, we have our position in this quarter. The Tier 1, we finished with 12.9%.

 And doing a simulation with a full impact of Basel III, we start with 12.9%, and then we have the adjustments. And the 1.6%, the decrease of the additional deduction that we had according to the schedule gives. During the fourth quarter, we did our adjustments about the migration of cash in our insurance business; that is, we transferred cash for the non-insurance company. And now, with the adjustments, it's very small -- only 0.1% that we need to do -- while in the past it was 1.4%.

 And looking to the future, our tax credits that we will do the compensation until 2019, our Tier 1 that we expect to have is 12.4%. This is more than the requirements that we having now. And we understand that now it's possible to do the Basel III implementation without any [difficulty] or without any limitation on our capacity to do business with our clients.

 In the right-hand side, in the top of the slide, we have here a new graph that is a demonstration. Internally, we had a decision to maintain our [common equity] with a minimum 11% when we have the final implementation of Basel III. And with the additional margin of 27%, we see Tier 1 and the Tier 2 bonds. Considering this ratio that we expect to maintain in the future, if you really do a calculation of the profitability, the ROE of Bradesco, considering the risk allocated for our operations, we have here the ROE. Now, Bradesco will be at 24%; it's the level that we are running.

 Then, the excess cash or excess capital that we have today, we maintain because we need to finish the implementation of Basel III. But we have the best situation in the Brazilian environment, Brazilian financial companies, for to do the Basel III implementation.

 Moving to slide 11, we have some information about our assets. We finished the year with BRL1.032 trillion in assets. Our return on assets is stable in 1.6%. And our equity, we finished the year with BRL81.5 billion, a 14.9% growth. And the ROE, 20.1%.

 In slide 12, we have here our expanded loan portfolio. We finished the quarter with BRL455 billion, 6.5% growth in the last 12 months. We have in the individuals segment that has achieved the best, the higher growth, 8.2%. And in the companies segment, corporates had the best performance, 7.3%. And the SMEs is running now around the 3.4% in the last 12 months, and our expectation is for the SMEs will maintain similar growth, probably very similar that we had in 2014.

 The main products that (inaudible) continues having the higher growth in the portfolio is real estate financing that we had in 2014, [that will] maintain the higher growth, and the payroll loans probably will maintain a similar production.

 Moving to slide 13, we have the delinquency ratio. On the top of the slide, we have the delinquency over 90 days. In this quarter, we had a decrease in our ratio, a 0.1% decrease, related to the decrease in the delinquency ratio for individuals and the SMEs. And we had stability in the corporate delinquency ratio.

 Our expectation is that this number, 3.5%, probably during 2015 we expect to maintain the stability in this ratio, because in the individuals portfolio we have some products that are having now the higher growth in the portfolio, have less delinquency ratio -- that is real estate financing and the payroll loans. And in the corporates portfolio, that we have now 0.8% delinquency ratio, the normal level is around the 0.4%, 0.5%. Probably, we expect during the year that will return to this level.

 Our expectation then is that this number, 3.5%, probably will be running 0.1% more or 0.1% less during the year, but we understand to (inaudible) the stability.

 And when we look for the short delinquency ratio, another graph that we have, in the right-hand side, shows that in the last quarter we had a new decrease in the ratio, 0.1%. And in both the segments, individuals and the corporates, we had this movement.

 Moving to slide 14, we have the provisions and the coverage ratios. On the top of the slide, we have here in the first line is our provisions compared with our credit portfolio; that now is 6.7%. In the second line, we have the level of provisions according the central bank rules; that need to be 6%. Then, this [0.7%] is around BRL4 billion, is our excess provisions.

 And when we compare with the real loss that we have in the Company after the delinquency ratio -- that is the last line, the lower line level -- that is around 3%.

 Then, our provisions, excess provisions, for to cover this loss in one year is around BRL12.7 billion; shows that how we are comfortable with our provisioning level.

 And the red line here is our delinquency ratio that shows that we had success and normally our delinquency ratio, the (inaudible) ratio, the real loss, is under the level of our delinquency ratio normally that we have.

 Looking for the slide that we have in the right side, we have here in this last quarter. The red column is the level of provisions that we have in our balance sheet; BRL23.1 billion is the total of provisions that we finished the quarter. And the other coverage ratio that we have now for operations over due more than 60 days is 156%, and for the operations over due more than 90 days is 189%. We had in both coverage ratios some additional growth this quarter.

 We are very comfortable with these levels of the coverage ratios and this is one of the highest level in the Brazilian financial companies. And we expect probably that in the next [few] years that we will have some stability in these ratios, probably with some growth or some decrease, but we don't expect any higher [movementation] and the more stability.

 In slide 15, we have fee and commission income. In the fourth quarter of 2014, we finished with BRL5.8 billion. In the quarter, 3.5% growth; but in a year, we have 11.6% growth. And the main growth and the more important growth in the cards: 12.8 billion (sic - see slide 15, "12.8%"). Cards, now, is one-third of the total fees. And probably we will maintain this double-digit growth for the next [periods] and this is why we expect that probably it will help us to maintain fees and commissions running in a double-digit way, pushing by cards.

 And another important line is checking accounts, that in the last 12 months grew 11.4%. But with the segmentation investment that we are doing and our client base that we are improving the number of clients, we expect to maintain double-digit growth in this line.

 Loan operations is another line that we could maintain these evolutions.

 And the consortium, that maintain a growth year after year around the 20%, is a very important product for us.

 And our revenues from the investment banks, the underwriting/financial advisory services, that probably will help us maintain this level due to growth.

 And the guidance that we gave for 2015 that is 8% to 12%, our expectation is that we finish the year running more in a higher level of the guidance, between 10% and 12%.

 Moving to slide 16, we have the operating expense. We finished the quarter with BRL7.8 billion. In the quarter, we had a growth of 8.9%, higher than the average of growth that we had in the other quarters. But we have here the effect of the seasonality.

 For the administrative costs, we had marketing investments; that is normal. We had marketing investments in the end of the year. And we have in some quarters that they have their growth related to the business volume that, with the increase of the business volume in the last quarter, we have some additional expenses.

 And in the personnel expense, we have the effects of the agreement with the union in September; this is why we had some additional costs.

 But when we look the full year, we finished the year with just 4.5%. Administrative costs, growing only 2.3%. This shows the commitment of the Company with the control of costs, with the efficiency. And we expect to maintain costs for the next period running below the inflation.

 Our guidance that we gave you for 2015 for operating expenses -- 5% to 7%. And the 7% is the level of inflation that we expect, that our economics department -- the inflation that we expect is around 6.8%. We understand that it's possible to continue running costs below the inflation.

 And because the effects of the investments in technology, our [rentalization] that we are doing in IT systems, during 2015 and 2016 we will continues with the implementation of the new systems in the banks. And in all the systems, we will turn off and all new systems that we used to do the implementation gave us a possibility to review the process, to have best class in the information, more [automatization]. We will continue to having some benefits of the IT [restabilization] plan.

 And in another way, our efficient committee will continues working for to maintain costs running below the inflation, working with other departments in the Bank, other responsibles for areas, looking for opportunities for reduce cost and the revising process.

 Moving to slide 17, we have some numbers about our insurance business. Our insurance written premiums, pension plan contributions, and capitalization bond income posted a 38% growth, quarter over quarter, mainly coming from the life and pension plan segment, driven by a higher concentration of pension plan contributions in the period.

 On the annual business, we saw an increase in 13.9%, disregarding the effect of the DPVAT. We reduced the DPVAT association. And I would also like to highlight the performance our auto, that grew 28%; health, 22%; and capitalization bonds, 15%.

 The net income for the quarter increased 16.8%, basically as a result of the increasing revenues and the 108-basis-points decrease in the claims ratio and the stronger financial results for the business. And year over year, the net income increased 17.8%, and is mainly explained by an increase in the revenues, the maintenance of the [plans] and expense ratios, the improvement in the administrative efficiency ratio in the insurance company, and the stronger financial results.

 Moving to slide 18, we show some of the main figures of our insurance activities. The financial assets amounted to BRL166 billion, while the technical reserves stood at BRL153 billion, BRL134 billion of which from life and pension plans.

 Now, in slide 19, here, we have a comparison with the 2014 guidance and the actual performance that we finished the year. Now, in the majority of the guidances, we had reached the target. We need to remember only the loan portfolio during the year, we needed to revise the loan portfolio growth because the economic environment; we decreased our expectations of loan portfolio growth. But we need to remember that our NII interest-earning portion, we increased the guidance; and the fee and commission, we did a similar movement.

 And in this slide 20, we have our guidance for 2015. As I told you, for the loan portfolio, 5% to 9%. The center of the guidance, 7%, is a little better growth we expect when we compare with 2014. And our expectation for (inaudible) GDP growth is 0.4% or 0.5%, that we have from our economic department.

 The NII interest-earning portion; 6% to 10%, we expect to have. And the main contribution came from more the loan portfolio because the expectation to have some additional spreads and a little better growth.

 Fees, we have the 8% to 12%, but we expect to maintain in a higher level of the guidance, in the double-digit portion, probably between 10% to 12%.

 Operating expenses, 5% to 7%. We maintain our target to have operating expenses running below the inflation. The limit is 7%.

 And insurance premiums, we have a very good guidance in growth -- 12% to 15%. We understand [that focus] reaching this guidance because of the new commercial structure that we have for our insurance company that we restructured during 2014 and considering the high synergies that we have between the bank and the insurance company.

 Finally, we consider our performance in 2014 that was very good, especially considering the challenges (inaudible) and the [growth] that we met, among which I highlight our ROE, [around] 20%, and the efficiency ratio that we reached in 39%, which provided us a 25% increase in the net income and in the dividends payout.

 Also, our coverage ratios remained strong and our delinquency ratios remained stable. This is important for the -- it shows the solid balance sheet that Bradesco maintains.

 And these aspects reflected the strategic planning initiatives aimed at generating consistent and sustainable results, preparing us to face even greater challenges in 2015. We will continue investing in our business, in addition to our recurrent investments in infrastructure, IT, and telecommunications that in the average is around BRL5 billion. In 2015, we expect we will do an additional investments in around BRL1 billion. That will be in direction to head our modernization of our branches and improve the number of our branches that we are working toward for to offer better (inaudible) services for our clients.

 Thank you for your attention. We would like now to invite you to our Q&A section.

Questions and Answers
Operator   [1]
 Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

 Mario Pierry, Bank of America.

 Mario Pierry,  BofA Merrill Lynch - Analyst   [2]
 Good morning, everybody, and thank you for a very detailed presentation. I have two questions. The first one is related to asset quality. You seem very comfortable of the outlook for NPLs, for provisions. Meanwhile, we see that the macro trends in Brazil are deteriorating, especially with regards to inflation, unemployment, GDP growth. So, it seems like there is a disconnect between what you're seeing and what we are reading in the papers and seeing day to day.

 So, I wanted to get a better feel for why are you so confident that you can maintain NPLs under control. Is it because you have been very cautious in growing over the last few years? Or, is it because you have a more upbeat outlook for the economy?

 My second question is related to net interest margin. On your outlook, you're talking about stable net interest margins. However, we are seeing that the competitive environment seems to be better for you today, especially as public sector banks are slowing down. Also, interest rates are much higher than they were. When I look at your net interest margin in 2014, they increased 60 basis points throughout the year, from the fourth quarter 2013 to the fourth quarter of 2014. So, why don't you expect net interest margins to be higher in 2015?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [3]
 About the asset quality, we know that in 2015 the growth in the economy will be a lower level. It's one year of adjustments; we could have some another adjustments in the expectation of GDP.

 But I think, first, here, we have more [surging] in loan growth. If we have some decrease in the GDP expectation, I think it will be, firstly, our loan growth will be more -- could be reduced. We could grow in a lower level of our guidance, more close of 5%.

 But when we talk about the quality of the portfolio, if you reanalyze the main segments that we have here -- individuals, example -- in our portfolio of individuals, (inaudible) in the last years for to develop the parts of our models, our systems, but to do the analysis and the approval of the credits. And our (inaudible), our models, normally they check more than 50 information about the client and the operation before to do the approval. This is one thing that help us to maintain the quality of our portfolio.

 In the individuals portfolio, we have the [components] that has a lowered delinquency ratio that we are growing more than the other products; that is, mortgage operations and the payroll loans.

 And our expectation for the unemployment rate for 2015, according our economic department, is [less than 1%]. Probably we will have an increase in unemployment rate, but it will be 0.7%, 0.8%. I think is the number that we have.

 At this level of increasing the unemployment rate and considering the mix of the portfolio and the expectation of the growth that we have for 2015, we understand that probably the individuals delinquency ratio will continues decreasing in a gradual way, but probably will continue decreasing.

 About SMEs, we expect that the SMEs will grow less than the other two segments. Probably it will grow -- the total portfolio, our expectation is in the center 7%, but the SMEs probably will grow [next to 3%], same we had in 2014.

 And we have in this segment a little more volatility, but we don't expect that to have an increase in the delinquency ratio, considering that the level that we have now in our delinquency ratio, the level that we have is between 4% and 4.5%. Probably during our year, we will be running between these levels.

 And when we looking for corporate portfolio that is 40% of the total portfolio, normally the delinquency ratio is in a lower level. We have now around a 0.8%. We expect probably that this 0.8% will decrease during the year, for the normal level that is more close of [0.5%].

 With this combination, we expect that we will maintain stability during the year in the delinquency ratio, considering the quality of the portfolio that we have now, the environment that we have now. We don't see any risk to have an increase in the delinquency ratio or a modification in the quality of our portfolio.

 Mario Pierry,  BofA Merrill Lynch - Analyst   [4]
 So, before you move into the answer for net interest income and net interest margins, let me ask you then a bit more specific about your exposure to the oil and gas sector. We're reading in the papers of significant problems at Petrobras, the downgrade of Petrobras today and the impact also it could have on the rest of this sector. How comfortable are you with your position to the oil and gas? How big is your position there?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [5]
 We [cannot do] comments about any clients or specific situation, but we have as a credit policy in the Bank to don't have concentration in the portfolio. (inaudible) in segments in cos. The operations we have in the majority are guarantees according the [reason or the] structure that we have in the operations.

 And if we analyze our portfolio according the central bank policies the big tickets or the big risks, we have the individual analysis, and the all timing we check the ratings of the companies and we have internally a governance. If we understand activity to modify any rate of the company, we do according the rules. And our adjustment we need to do, we did.

 And we are comfortable looking for the portfolio that we have now and the information that we have in the market. And the information that we have according the financing movements that we have in our (inaudible) operations. We are comfortable with the quality of the portfolio.

 About the NIIs, I think our number, our guidance, is a little conservative. Probably we could have some opportunity during the year for increase the spreads, because the competition -- most banks now are working on more in a normal way and perhaps in more normal spreads. We see opportunity for during the year to continue maintaining the spreads in a more normal level and (inaudible) consider the risk that we have in a normal competition.

 But I think we will maintain this level even during the year, if you understand that we have how to improve the guidance. We will do. I think, really, we were a little conservative in this guidance, but you could work in a more higher level of the guidance; I think it could be reasonable.

 Mario Pierry,  BofA Merrill Lynch - Analyst   [6]
 Very clear.

Operator   [7]
 Tito Labarta, Deutsche Bank.

 Tito Labarta,  Deutsche Bank Research - Analyst   [8]
 A couple of questions. One, just to follow up a little bit more on asset quality. This is a big topic now. Just given all the macro concerns that Mario mentioned, at what point do you think things could begin to shift, particularly hearing more potential risk of energy rationing in Brazil? At what point do you think you could see some deterioration in asset quality?

 And in terms of your provision levels, I think you also mentioned that they can even grow less than loans. At what point, again, do you start to get a little bit more uncomfortable, just given the macro risks? I just want to understand that a little bit more.

 And then, second question, just in terms of your fee income guidance, I know you continue to see good growth there, particularly with credit cards. Also, credit cards grew quite a bit in the quarter. Just want to understand, if loans don't grow that much, what makes you comfortable that you can continue to grow fees at a double-digit pace? If you could give some more color on that, as well?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [9]
 About the asset quality, when we talk about our expectations of stability, we consider the information that we have now that [leads us] expectations with the potential [increase] in price in some segments in the energy or the risks that we have without the water, which we will be without the water in some situations.

 But you need to consider that if you look for the last period, we are growing in a more according was possible to grow with quality. Then, we are working in a credit policy that to maintain our portfolio with the quality stable. If we expect to grow this year as same our guidance that we gave you, 5% to 9% is what we understand that's possible to grow during this year with quality.

 I think considering the environment and the risk that we have, okay, we could have some additional effect, but I think our expectations probably with the stability will happen during the year because we could even have some variations, 0.1% more or 0.1% less, during the year. But when you looking for the long term, our expectations in our portfolio that we will have a decrease in the delinquency ratio because some of the products that are growing more are some products that have a lower delinquency ratio. Individuals portfolio, SMEs is growing less than the average of the other segment.

 And the corporates portfolio, okay, we have some additional risks in the coming, but every year we have additional risk. And if you look this last year, we started the year with a GDP expectation growth was 2.1%. We finished the year with a near closer of 0%. If you look our delinquency ratio, Bradesco delinquency ratio was stable -- 3.5% in the beginning of the year, 3.5% in the end of the year.

 We understand that probably we will have a similar situation this year. We have sawed new events during the year. But in looking forward portfolio, our positioning, we understand that probably we will maintain this reasonable stability in the delinquency ratio.

 Tito Labarta,  Deutsche Bank Research - Analyst   [10]
 So, just to clarify, I guess, in terms of your sensitivity, say, to GDP growth and the macro, you feel pretty comfortable that given the tighter lending standards you've had over the last year, or so, that even if there is a recession in Brazil, you still feel pretty comfortable with this outlook of relatively stable asset quality?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [11]
 Our expectation -- 2015, because is a year that we will have adjustments, we will have this small GDP growth, probably 0.5% that we have now, or it could be less. But our expectation is that in 2016, we will return to recover the growth. This year is one year of adjustments, [not] higher adjustments. But we understand that these adjustments, we will [build you] for the country one way to recover the growth, that will return in 2016.

 Considering this scenario that we have here of our expectation, we understand that this small growing GDP during the year, or if we have a negative growth, not to affect the quality of our portfolio. And in 2016, [we will] return to growth and probably this stability will continues.

 Tito Labarta,  Deutsche Bank Research - Analyst   [12]

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [13]
 And about the fees that -- your question is about credit card fees that maintain a huge growth. The guidance that we give is expectation maintain fees growing at double digit. And the main products, normally it's credit cards; that is one-third of the total fees. We expect that for this [year, 2015, and towards 2016] that we will maintain -- we will continues with the growing credit card in that double-digit level.

 But year after year, this double-digit growth is reducing a little. Last year, we finished -- in 2013, I think we finished with around the 15% growth in credit cards; this year, at 12%. But probably 2015, this product will be close of 11%, or a little less than 12%. And then, next year, [2016], probably we will maintain a double-digit growth. We understand that in cards, considering the environment and the -- probably we will maintain this tendency to be running at double digit.

 And we consider the other fees and the commissions that we have and the investment that we are doing in segmentation and that we are now investing in our (inaudible) base of clients and the [weight] and new segments. And we expect to improve the number of products per client, to offer more services and probably the fees. This is why we expect that the fees will continues growing in this double-digit growth, in a more lower level in the guidance that we have now. Probably between 10% to 12% is our expectation to finish the year.

 But [it's an important evolution if you compare that issue we have the costs running] below the inflation. We will continues improving the efficiency in the Company.

 Tito Labarta,  Deutsche Bank Research - Analyst   [14]

Operator   [15]
 Marcelo Telles, Credit Suisse.

 Daniel Magalhaes,  Credit Suisse - Latin America - Analyst   [16]
 Actually, this is Daniel Magalhaes. I would like to ask you two questions. Firstly, what would be the practical impact in your business from the energy rationing? For instance, would it be in volume growth? in delinquency?

 And for the second question, I would like to try to get a little bit more of color on your exposure to Petrobras supply chain? Your exposure occurs mainly through bonds or through credit operations?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [17]
 About the potential effects of the energy price, the rationing, we understand that it could affect the GDP growth (inaudible). We were talking our GDP to grow less than we expect, 0.5%; could it be near there or it could be negative. But we understand that about the asset quality, I think we don't expect to have a huge impact. This is why we talk about the stability in the asset quality, the delinquency ratio.

 I think some effect could it have been in our loan portfolio growth. If we have GDP growing less than we expect, probably the loan portfolio growth will be running a more lower level of the guidance.

 And talk about the Petrobras, we cannot talk about the clients or a specific situation. But as I told, our credit policy, we don't have -- in our credit policy, one of principles is not to have a concentration in segments or in clients. We have internal limits for segments and clients, and these limits, we revise it normally in our governance, in the committees and normally watch it, in this analysis, try to prevent the future risks.

 I think that the (inaudible) that it has, the combination that we have in our portfolio, the guarantee that we have in the operations, the structure, we don't expect any huge potential sector. This is why we say that our expectation for the delinquency ratio is the stability and that we don't have any other information about this situation.

 Daniel Magalhaes,  Credit Suisse - Latin America - Analyst   [18]

Operator   [19]
 Thiago Batista, Banco Itau.

 Thiago Batista,  Itau BBA - Analyst   [20]
 I had two questions. The first one, regarding insurance premium growth, the guidance of 12% to 15% indicated that the growth of insurance would be even higher than the level we saw last year. So, my question is, what is the main segments that will lead this expansion during this year?

 And my second question is about the services fees income. You commented that the credit card and also the checking account will lead the expansion in the fees during this year. But we note that the number of checking account holders have declined during last year. Sorry; actually, it went up, only 0.2%. So, my question is, do you see a higher increase in the number of checking accounts during this year? Or, the segmentation will justify the potential increase in the service accounting fees?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [21]
 About the insurance [benefit] for premiums, there are on a more higher level if you compare with the other years. One thing is because the new commercial structure that we do in 2014, we have restructured. Now, in the (inaudible), we had a better positioning for to have a better growth. And considering this situation and the synergy that we have with the bank, the main growth that's expected is in some segments, mainly health, life, and housing insurance, the main growth that we expect. But normally, the majority of the [things] came from pension plans. We expect to have a little better growing these products, too. With this combination, I think it will be possible to reaching the targets or the guidance that we have now.

 About checking account holders, during 2014 we maintained the number of checking accounts holders more stable. But because we are working for to develop now the segmentation in our base of clients, then we work during the year for to develop better this new segment that we are creating, that the name is [plastic] and the exclusive. These two segments that will be run will be for clients that are below that we have now the prime segment. We will help build -- we will [permit sales] to improve the number of products per clients. And we expect now, during 2015 to recover of the growth in our client checking account holders, the number of checking account holders.

 We used 2014 for to develop more these new segments, and it's now during 2015 we expect to have some benefits now with this new segment. The fees, normally, because the quality of services we will grow, and the clients need to accept to have a migration for these new segments. But when they accept it, they will start to pay fees a little more higher and additional price, yes. But they will receive some better benefits and some advantages for them. With this combination, we understand that fees for our checking accounts holders will have some -- we will maintain this double-digit growth in 2015.

 And at Bradesco, we are more developed in the segmentation in the top tier of our parent in the corporate and in the [empresas] segments. Looking for the individuals, we have the private and the [primary] clients. But we had [a lot safer] to develop more the segmentation in the client base [in that retail client base]. That's a big portion of our clients and where we see a lot of opportunity for to improve the profitability of our clients.

 Thiago Batista,  Itau BBA - Analyst   [22]

Operator   [23]
 Saul Martinez, J.P. Morgan.

 Saul Martinez,  J.P. Morgan - Analyst   [24]
 I hate to beat a dead horse, because we've addressed asset quality in a lot of detail, but I think the market's reaction to what seemingly were good results indicates that there's a heavy amount of skepticism about your asset quality guidance and especially your guidance for loan loss provisions growing at less than -- or, one-half the rate of loan growth.

 So, a couple of additional questions, that you partly addressed. First, in a stress scenario where GDP growth doesn't contract 1% or even 0.5%, but you see 2%-, 3%-type of contraction, or even more, over time, how does that impact your view of the business and asset quality in provisioning?

 And I worry because, obviously, on the consumer side you may be okay, but with corporates and companies you have very big tickets. And as you start to downgrade companies' entire risk classifications, it could have a very, very sizable impact very quickly on your provision. So, if you can talk to that, one?

 Two, you have in your portfolio based on public disclosures BRL36 billion of real estate and construction and BRL24 billion of construction exposure, which is about 7% of your loan book. Can you talk a little bit about why, because it seems that's bigger than your peers, most of your peers? Can you talk a little bit about why you feel comfortable there, especially in light of the issues that some construction companies are facing with the Petrobras corruption scandal?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [25]
 Okay. So, about the GDP, we don't have this expectation to have a 3% decrease, negative growth, in the GDP. We don't have this expectation. I think probably we can have not 0.5% growth. We can have some negative effect. But I think until 1%, that is not to affect our expectations for the quality of our assets during the year.

 We understand that the scenario that we have, if we have a stress scenario, is one scenario where we probably are growing the loan portfolio being a lower level, 0.5%; it could be a little less. But when we look for to the 2016, what we expect is that the country will recover the growth. It is a short period of contraction. We can have some reduction in the [consumer portion] or some effects, but I think not to be motive for to have a huge increase in the delinquency ratio in the sector or SMEs or other sectors.

 About the exposure that we have, our segments that we have, when we talk about segments, we analyze our companies that we have there and the [niche] for the companies that we have there. And we have in Brazil a lot of companies that not only companies that are working with Petrobras, and they are in this operation with that. We are comfortable with the volume we have in operations that we have in our segments.

 And the builders that we have in the positions, some of they are businesses that work only with the real estate or mortgage operations. And we have different sectors. And the concentration that we have for clients, some of the companies, they have -- they are huge, the groups having many other companies in different other segments. They are not only builders companies. They have companies in the group that they are builders -- probably this is why we classify, saying as builder -- but hey have other investments or other businesses that relate to other segments. We are comfortable with the position that we have in by per segment or per clients, and this is according our criteria of (inaudible).

 Saul Martinez,  J.P. Morgan - Analyst   [26]
 Okay. Now, I think I understand that's not the base -- the economics of a more severe recession is not the base-case view and you're not factoring that in, but there are folks who are increasingly worried that given all the negative developments, that Brazil can have a much more severe recession than 0.5%; it could cascade further. In that scenario, is it fair to say your credit quality will suffer, even if it's very difficult at this point to pinpoint how much?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [27]
 We know that it will not be an easy year. It will be a very difficult year because the scenario that we have, the adjustments. But as I told you, I think you need to work normally in a preventative way. If we worked very (inaudible) in the last two, three years, probably we will have now some problems, because one part of our growth probably will happen in a more higher-risk clients, I think.

 But consider the position that Bradesco maintained in the last years and according our policy, I think we could get a lot -- we could maintain the portfolio in a quality that for us is an offer to support this environment that we have now, that we expect for 2015.

 And as I told you, it is only for 2015, because for 2016 we expect that the economy will start to recover the growth. This situation ought to [start do] in 2015, not to be an offer to modify our expectation about the quality of our portfolio, the stability that we expect. The stability that we are talking, it's with some increase, 0.1% or [partially] 0.1% decrease, but it's something that's not to change our expectations during the year.

 Saul Martinez,  J.P. Morgan - Analyst   [28]

Operator   [29]
 Boris Molina, Santander.

 Boris Molina,  Santander - Analyst   [30]
 Just two questions. The first one, do you expect that the Brazilian regulators are going to issue new regulation related to Basel III for domestic significant or large institutions, implying an increase in your capital requirement? If so, do you expect this to be 100, 150, 200 basis points? What are your current thoughts on this?

 And second, could you please elaborate a little bit on the mark-to-market losses on available-for-sale securities on the bank book? Apparently, there was a negative adjustment, close to BRL500 million, in a combination of equities and foreign bonds. If you have any color this, we'd appreciate it.

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [31]
 About the Basel III, some potential new requirements, probably we will have our central bank [told you] about some potential new requirements. Probably we will have more close of the end of the implementation of the first steps. Probably more close of 2018/2019, I think we will have the information. But we don't know how much will be the level. Probably around 1%, but we don't have the potential percentage that they expect to adopt. But I think at the maximum will be similar of the international rules, but we don't have now this information.

 And about the market marking adjustment, it's a normal adjustment, apparently the market price of the bonds. For the available-for-sale portfolio, these adjustments that we do is in the equities. There is a part in the portfolio that we have now. We did the adjustments in booking for the market price. We don't have any specific situation that we can highlight.

 Boris Molina,  Santander - Analyst   [32]

Operator   [33]
 Victor Galliano, Barclays.

 Victor Galliano,  Barclays - Analyst   [34]
 Just a quick follow-up here on the credit quality issue. If you look at your consumer credit quality exposure and, in particular, if you look at that Class C which obviously was the dominant driver in terms of consumer loan growth in the last boom, they're probably sitting on quite a lot of leverage right now, a lot more than the average that the central bank data shows. Can you give us some sort of idea of how exposed you are to that Class C? And what you do to mitigate the risk of worsening NPLs and people getting over-leveraged in that space?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [35]
 I don't have the information to disclose you how is our exposure towards this Class C, but I think if you look, our portfolio for individuals is very (inaudible) in these products. I think we don't expect any modification. Our expectation for the individuals portfolio is that probably it continues decrease in the delinquency ratio, because the payroll loans and the mortgages growing at the ratio around the 20%, 15%. And the other products, they are growing closer at 7%, 8%, and the other products has more higher risk.

 Our client fees, I think probably will maintain stable, the other products, the delinquency ratio. We don't see any risks to have a modification in our portfolio because an effect in this potential class.

 Victor Galliano,  Barclays - Analyst   [36]
 Okay. Not even in credit cards exposure through the consumer finance arm?

 Luiz Carlos Angelotti,  Banco Bradesco S.A. - Managing Officer and IR Officer   [37]
 (multiple speakers) one of the actions that govern what they are doing is trying to control the inflation. They advertise that they improve the (inaudible) rate. They are reducing the capacity of the people financing their -- to buy products. What we will have is only the consumption. The growth of our portfolio, it will decrease. But if we select the clients accounting according their capacity to buy products to financial capacity, according other internal credit policies, then I think we don't expect any different effect affecting our clients' ability considering this Class C clients.

 Victor Galliano,  Barclays - Analyst   [38]
 Okay. Understood.

Operator   [39]
 Ladies and gentlemen, since there are no further questions, I would like to invite Mr. Paulo Faustino da Costa to proceed.

 Paulo Faustino da Costa,  Banco Bradesco S.A. - Director, Market Relations Department   [40]
 Thank you, all, for participating in this conference call. I would like to take this opportunity to remind you that our Market Relations department and our IR team are at your disposal.

 Thank you very much for all of you.

Operator   [41]
 That does conclude the Banco Bradesco's audio conference for today. Thank you very much for your participation. Have a good day.

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